Trading Tips & Strategies

Haven’t written for a while. Not much has changed in the bank account balances, have a number of trades on at the moment, will see what happens with them. I’ve been generally putting smaller bet sizes and it definitely is a much better way to trade – takes the emotion out of it somewhat. Also, I’m sometimes utilising guaranteed stops and planning on not selling so quickly, rather to wait till the share moves into profit, adjust the stop to the buy level then my initial stake is free to use again (or the trade gets stopped out at a known amount of course).

Should active investors, as well as day traders, be spread betting? I believe the answer is ‘yes’ – it’s a nice cost-effective, tax-free way to make money whether the market goes up or down…but not everyone is suited to it.

I view life as a learning curve and as a personal self-development course. Here are some spread trading tips and strategies from my experience -:

Know your market. Choose a market that you really understand and are comfortable with. A good trader is able to identify and understand events influencing market movements, such as economic data, and their likely impact on the price actions of the market he wishes to trade.

Limit your open positions. When starting out only pick a few markets that you are familiar with and open a few spreadbets. Don’t be tempted to start day trading at this stage particularly if you are a beginner. This rule is particularly important when markets are turbulent especially if the market is running against your existing positions.

When starting out keep your strategy simple, no good getting involved in strategies you can barely comprehend. And take ownership of your trading, don’t rely on tipsters for trading entries and exits.

Run profits and cut losses. How many times have we heard this? Yet, do we really follow this mantra? How you spread trade depends on your circumstances and trading perspective but the trading principle will remain to run profits while cutting losses short. Losing traders tend to run their their losses and grab their profits way too early. The ego inside us works against us and makes us want to be right time after time; and we definitely hate to be wrong. So if we put on a spread trade and it goes your way, we can’t wait to take profits, bank a winner, tell everybody! And when our trade goes wrong our egos tell us to ignore it as we don’t want to be proved wrong by taking the loss; so we run the loss in the vain hope that the market will swing around, get us into a profit so that we can bank it and prove that we were right in the first place. This is certainly no way to trade, as we know, the market, more often than not, does not swing round. Our losses mount until we cant ignore them anymore, forcing us to take a big loss; a loss much greater than the profit we would take.

Have hard stops and don’t risk more than 1 or 2% of your bank on any single trade. Avoid scaling into or doubling down on trades. The popular martingale is a unfortunately just a way to lose money more quickly for newbies. Only expert traders can use this technique successfully IMO.

Use charts or money management to help you gain an edge. Buy shares in an upward momentum and sell if momentum reverses. Charting a simple rule > hold above the cloud and be ready to sell if it falls below the cloud would work. P&F would work, although not straight forward. The Point and Figure charts interest me because they represent pure price action and nothing else. No bullshit to cloud the picture, just price action and support and resistance. I’m hoping to incorporate the P&F price targets into my current system to help me become even more profitable. Stochastics and MACD seems to work better for short term trends (spread betting).

Have a trading plan – Your trading strategy or spread betting system may be based on technical analysis or based on fundamental analysis but what matters is that you follow the methodology. It is pointless to have a trading plan if you don’t have the discipline to stick to the strategy. As soon as you start tweeking things, it so often goes wrong.

Don’t let your emotions interfere with your trading – Controlling your emotion is crucial to avoid making costly trading mistakes and of course more than anything, emotions running high can lead to you not sticking to your trading strategy. Make sure you know your weaknesses, if Fear and Greed take over you are doomed.

Keep it simple – too much analysis leads too paralysis – too many spread traders are looking for the perfect storm scenario when they trade, which is fine if you want to trade just 4 times a year. I know of one trader who uses MACD to take him out of a trader, I have found this to be ok but will quite often take you out then reverse, which we all know is very annoying. For those like me with a little more appetite for risk, when using MACD to exit I would move it up to the next time frame, basically if you’re on the right side of a trade it should come to you but the biggest mistake most make is they are too keen to cut a trade, it’s understandable this is our greed and fear psychology coming into play, I think the biggest thing is finding a plan that suits your personality, it’s not a one size fits all game.

The trend is your friend – don’t rely on technicals too much. But assume that the trend will stick so always buy/sell on pullbacks. You should be able to or sell without having to look at the chart first. Know whats value for money. If a trade works for you go back and hit that trade over and over again until it stops working. This can be very profitable.

Big stop losses work for me. The biggest issue I have found is that you can pick the right company in the long run, but if use stop-losses then the short term movements can stop you out. So have a plan to get round that. Mine is to use wide stop losses. That way I don’t have to screen watch every second of the working day. That’s not the same as chasing losses and averaging down! Spread betting becomes too stressful and when you start chasing losses – that’s when it can be very dangerous, which is what I unfortunately tried to do when starting out… Kept buying the FTSE as it was plunging , £1 a point, £2 a point and it just keep falling and i kept adding from 5250 downwards with a stop loss at 5000 which got hit – that was one hell of a lesson!

Always take profits / move stops as positions move in your favour. Remember to ‘leave some for the birds’.

Start trading to learn not to make money. Play the long game and see how your progress over a series of trades rather than the next trade.

Keep asking yourself questions. What has the market done, what is it trying to do. If it does this I expect that. Hypothesize, you can test them out on past data. Very useful for future trading IMO.

Lastly but not least SET REALISTIC GOALS

The spread betting companies may indirectly profit by people making bad bets, but I’m not in that category. The trick is to be very well disciplined and never over stretch yourself.

SUMMARY: Be disciplined, always stick to the rules, don’t be greedy, don’t beat yourself up on a bad call, protect your capital at all times, and stick to liquid instruments, do not touch aim if you are a beginner and keep stakes small, a good FTSE company if it goes south will take a good while to die, more than enough time to get out, but anyway you should be well out of it by then. Never play with scared money. Stick to the rules, never get to liking a share. Just see it as a means to make money and nothing else.